11 Budget Planning Mistakes to Avoid

Whether you’re living paycheck to paycheck or you have a surplus of savings built up, learning to budget your money – and maintaining an ongoing budget planner – is vital to proper money management.

There’s no one right way to budget your money. Some people like to jot income and expenses down on paper, others keep a sophisticated budget spreadsheet and still others prefer using a free online budget planner that does most of the work for you. It doesn’t really matter how you keep your personal budget so much as picking a method that makes sense to you and one that you will maintain regularly.

To make sure your budget does what it’s supposed to, be sure to avoid these 11 budget planning mistakes:

1. Not keeping a budget planner at all.

If you have no semblance of a budget planner and never write your income and expenses down, how do you know the state of your finances? How can you be sure you’re not spending more than you’re making? If you don’t manage your money, it will manage you – in the form of debt, interest charges, bad credit and other unpleasant consequences.

2. Thinking short-term.

A monthly budget is a great first start, but it’s difficult to account for less regular expenses that way. Think ahead at least a year and budget one-time items and other events – like holidays and birthdays – so your personal finances aren’t turned upside-down by a single occasion or large purchase.

3. Being unrealistic.

If your budget planner never matches up with reality, what’s the point of keeping it? The ideal personal budget tracks real income and expense patterns, and allows you to plan for the future. If your estimates are always off, however, your future finances are no more than a guess. To help keep it real, estimate what your expenses will be for the next month. Then, keep track of your actual expenses and at the end of that month, compare the estimates with the actuals. That way, you’ll learn how you are really using your money so you can make better estimates for the future.

4. Spending more than you earn.

This may seem like an obvious error to avoid, but with U.S. consumer debt reaching $2.45 trillion at the end of 2009, according to the Federal Reserve, it may not be obvious enough. Keeping an ongoing personal budget will help you to track what’s coming in and what’s going out – and to make sure the first number is higher than the second one.

5. Saving too little.

Savings shouldn’t be an after-thought; it should be budgeted just like everything else. Traditional thinking holds that you should save 10 percent of your income. Whatever number you choose, add it to your budget planner and stick with it. Set up a direct deposit from your paycheck into a savings account, if possible, to make it automatic.

6. Neglecting to plan for a rainy day.

Aside from your savings, you should budget for a rainy day – an emergency situation for which you can’t necessarily prepare, like an unexpected medical expense, house or car repair, or job loss. Like your general savings, there should be a place for these funds in your budget planner rather than pulling from whatever might be left over at the end of the month.

7. Keeping an overly elaborate budget.

If you’re a budget nerd who prefers an incredibly detailed spreadsheet, kudos to you! But if you’re like most people, making your budget planner too labor-intensive and overly detailed will likely lead to budget abandonment. Everyone requires a different level of detail; find yours and stick with it. If you’re just getting started, begin with a high-level budget and add more detail as you need it.

8. Allowing your checking account balance to go too low.

When you near $0 with your checking account – or main bank account – you’re flirting with unnecessary fees and frustration. Budget yourself out of this predicament by setting a new zero. If you view an amount – let’s say, $100 – as the new absolute minimum, you’ll prevent yourself from losing any money. Plus, you’ll have a safety net in place if you ever make a budgeting error.

9. Relying completely on bank and credit card statements to get it right.

Don’t assume that what’s on your bank statement or credit card statement is 100 percent correct. Banks and creditors make mistakes too and if you don’t at least occasionally double-check with receipts, you may be forfeiting your hard-earned cash.

10. Never adjusting your budget planner.

Your personal financial situation is bound to change. Update your personal budget with new sources of income and new expenses, and make sure to adjust your budget to align with your spending habits. Keeping an archive of your budgets is a good idea too, as it allows you to look back and determine spending patterns and what adjustments you should make.

11. Not accounting for interest.

Neglecting interest charges on credit cards and loans in your budget planner will likely lead to a budgeting shortfall, especially if you’re paying hefty sums in interest each month. You don’t have to get the amount of interest exactly right in your budget, but it’s smart to make a best guess. Estimating interest will allow you to really see how much you’re paying to borrow money from creditors and lenders, and will help ensure that you have enough money budgeted to cover these payments.